The Paypal issue has created quite an awareness (and the impending confusion between IEC code vs. Purpose Code) about the Exports of Goods & Services regulations and here is a guest article by Sandeep, ex-HSBC Banker to help you understand the issue better.
Exports of Goods & Services – Regulations
Exports of goods and services (including software services) are regulated by DGFT & RBI and there are regulations both on the documentation and the payments part. Some of the regulations which cover these transactions are as follows:
- Master Circular on Export of goods and services
- Foreign Exchange Management Act (including FEMA 14 which talks about Manner of Receipt of Payment in Foreign Currency and FEMA 23 which define the regulations related to Exports)
Some of the important points from the above regulations are as follows:
Export Documentation
- Any exporter of goods / services out of India has to ensure the following:
- Exporter is registered with DGFT and has a valid Importer / Exporter Code (IEC). This is mandatory for all exports out of India irrespective of the size of the transactions.
- The buyer has to be billed within 15 days from the date of providing the service.
- Exporter to declare the exports being made in the specified form with GR/SDF being the form for physical exports and Softex form for exports of Software in non-physical form (if the software is being exported in a CD for e.g. it will be covered under the physical exports) within 30 days from the date of invoice to the certifying authority.
- Exporter needs to send the documents related to the export to his bank within 21 days from the date of certification of the Softex form. For software exports it is normally the Softex form and the invoice.
- If the declaration in form GR/Softex has been made, then the Banker’s copy of the form is to be submitted along with the documents.
Good part is that there are various points under which the declaration has been exempted. One of these, which I think will be applicable to many transactions, is the exemption for goods and services less than USD 25K in value. In these cases, the transaction can be submitted to the bank without the declaration form and instead the exporter can give a letter confirming that the goods are not more than USD 25K in value. The exporter will still need to have a valid IEC and expected to realize and get the funds into India.
Receipt of Payment
- Payment is to be received within a period of 12 months from the date of exports /invoice date
- RBI covers only transactions being routed through the banking system so it does not specifically mention anything like a PayPal (which is not a bank) in its regulations.
- The options normally used by exporters to get the money into India are to get the buyer to either remit directly to the exporter’s bank account in India using a wire transfer /SWIFT or get the buyer to issue a cheque /International DD.
- Once the money comes into India and is processed by the bank, the Bank would issue an FIRC (Foreign Inward Remittance Certificate) which would mention the amount and conversion rate besides other details
- Bank would report the transaction to RBI along with the necessary details
- FIRC to be submitted along with the documents which would be endorsed against the export transaction and a BRC (Bank Realization Certificate) issued.
- If the documents have been submitted prior to the receipt of the funds, then the bank can directly link the inward to the transaction and can directly issue the BRC without the FIRC being issued.
PayPal has mentioned about processing these transactions along with the code being mentioned but that would be over and above the IEC requirement. Also it is not clear under which regulation does the foreign currency account opened with PayPal is covered since normally RBI restricts the holding of Foreign Currency accounts outside India by resident Indians. This would be only clear if RBI or PayPal speaks on this.
The other online money transfer sites like Xoom, money2india, remit2india are for P2P remittances normally and hence they permit you to transfer money from your own account outside India to an either your own or other personal accounts in India and are not the ideal ones for your business transfers.
[Guest Article by Sandeep Chandalia, who was earlier with HSBC and has started up recently in banking related software.]
Just read at labnol that paypal was wrong at mentioning IEC code when actually it needs a Purpose code.You might want to check this and update this article,
http://www.pluggd.in/how-to-get-purpose-code-for-paypal-withdrawal-297/
IEC code is required for all exports. Please see DGFT site
http://dgftcom.nic.in
The Foreign Trade Policy mentions
“No export or import shall be made by any person without an
Code (IEC) Number IEC number unless specifically exempted. An IEC number
shall be granted on application by competent authority in
accordance with procedure specified in HBP v1″
Thanks for the great article Sandeep.
Kudus also to Ashish (Pluggd editor) for carrying these stories.
Some questions :
1. Is the 25K limit per year or per transaction ?
2. If we get 20-30 customers a month, but low $ (say < $300) per customer, do we need to do the Softex/FIRC/BRC for each ? (They are triplicates)
3. Who is the filing authority for "FIRC" along with "Softex documents" and "BRC" ? Do we give these forms to the bank ?
4. Obviously for software products, we cannot get any documents from end customer. Would we be willing to write a official receipt letter to McAfee USA each time we purchased anti virus online ? Yet some of the forms insist on receipt.
5. I was also advised to get a CST number by a consultant. Every month I studiously file a CST/TNVAT return (nil taxable because 100% of my sales are exports). Is this required ?
Is there someone who can help us with this ? I am willing to pay. Contact me via URL Info page.
—
Once I get this done, I promise to write up a detailed blog post of my frustrations selling packaged software from India.
When I opened shop here I thought I could simply hire someone and have them take care of "formalities". Beware, it is hard to find someone for small guys and on top of that most of them honestly dont know what to do, so they trap you into unnecessary filings (like my CST VAT story).
This is why many companies transact business from overseas and open an India office as a wholly owned subsidiary.
1. 25K limit is per transaction
2. Softex not required due to point 1. FIRC/BRC issued by bank, nothing to be done at your end.
3. Softex forms are certified by EPZ /FTZ /SEZ / STPI. FIRC are issued by the banks and may have to be submitted back to them if you need BRCs. BRC is again issued by the bank and doesnt need to be filed.
4. Nothing required from the buyer. An invoice raised by the exporter is usually what is submitted along with the softex.
5. Not aware of this.
Sandeep,
Brilliant ! Thanks a lot.
I will follow it up with ICICI here.
It sounds like filings are with my bank.
Thanks,
Hello,
I have a few questions ,I am a online retailer,we send software (Cd’s educational ,antivirus ) to international destinations.now we send about 5-6 items per day, the value of each shipment is approx. $US15-18,until now we got paid through paypal & withdrawal of funds was possible.we shipped the items through indian registered post simply by filling up a customs form (& in many cases not even doing that becuase most countries charge duty if the shipment is over USD 50)
however as per the new awareness ,I would like to know :
1. Do we need an IEC ? I have seen many big exporters they drive fancy cars they never registered under any VAT/DGFT or anything .
2. Are we required to fill these forms like GR/Softex/PP form n all ? if yes then who are we gonna submit it to when we are using indian post ?
3. What is this FIRC & who is going to issue it ,suppose if i get funds from paypal in my bank account then who will issue me a FIRC paypal or my bank ? do i have to run to bank for each transaction for getting FIRC ?
one more thing,i have heard that DGFT gives IEC code to people but then there are many additional formailites to be done even if you are a small individual ? is this true ?
Thanking You,
Sincerely
Dear Sandeep ji,
Thank you for the highly informative article. It would greatly help many if you can clear up on imports too. Apart from obtaining an IEC, what are the documentary requirements for making imports into India? Can you please elaborate a bit on the process of importing, shipments, etc for the readers, please?? Thank you very much.
Please answer this question as i have been running from pillars to post but have not got answer for this.
When I withdraw money into my bank account, it comes in INR so bank is not issuing me any FIRC certificate. At the same time, PayPal says that the bank will issue FIRC and not them..
Please advise who will be submitting the FIRC certificate.
i have a peculiar case…….
i am a service exporter (agent) helping buyers source product from India. The buyer places the order with the me for a “Y” exporter. The Y- exporter then exports the goods directly to the buyer and hold on the docs to get payment released. the byr on seeing the bl copy releases the total pymnts to me along with my fee as a single transfr which then i have to remit to the exporter for various reasons he does not want to do separate trnsfrs. now the question are
1. how do i declare this paymts– shall i say it is commission- since that is the term under which i do my filings and since the net amt came to my account
2. how do i trnsfr this to the exporter so he does not have hassle in filing with his bankers and claiming the benefits of the export performed.
what is the right way and what paper work needs to be kept in mind to doing this so no party is penalised later.
What is the proceedue to issue duplicate BRC ?